Big interview: Alan Ball

Vendor relations, rumours of going direct, Amazon forays; these are just some of the topics that have brought Spicers UK & Ireland into the headlines over the past year.


Vendor relations, rumours of going direct, Amazon forays; these are just some of the topics that have repeatedly brought Spicers UK & Ireland into the headlines over the past year. Since investment firm Better Capital acquired the business just under a year ago the wholesaler has been laser focused on emerging from being loss-making to profitable – and has taken some bold steps along the way.  

OPI visited CEO Alan Ball as Spicers moves into its new offices in Waterbeach, near Cambridge, to ask some of the questions that have been circulating the industry.

OPI: What attracted Jon Moulton to Spicers? 

AB: I think the asset base in general and a business that he recognised. Better Capital classed Spicers as an opportunistic acquisition whereas most of their other acquisitions have been failing businesses. They saw a business in turnaround but it was by no means guaranteed, so I think he just saw the opportunity. Time will tell whether that’s a good investment or not.

OPI: What can you share about how Spicers is trading?

AB: Not a lot, unfortunately; we’re still finalising the DS Smith final accounts. What I can say is that sales were up by 1% on the previous year, so circa £320 million ($512 million). From a profitability point of view we’ve made significant steps, primarily, as we said we would, by helping ourselves. There was an inordinate amount of cost that needed to be stripped out during the ownership of DS Smith, particularly through the sales process. Since the acquisition we’ve been supported in doing that, which has led to a very strong performance. 

OPI: What about gross margin?

AB: Gross margins have improved. We’ve taken a lot of business on the 5 Star range, I think because of the economic climate. People are moving to own brand and that does generally afford better gross margins. Mix of business has improved. We are selling less EOS and that has an immediate impact on gross margin. 

OPI: What filled the gap made by EOS?

AB: Paper’s strong; we’ve got very close relationships with mills now, we’re doing a lot of container business. I think it’s proven that we can play in that space as historically it was a very strong category for Spicers. We continue to see strong growth in facilities management (FM), which is by nature a better category in terms of gross margin.

OPI: Is that meaningful growth or just strong growth from a very low base?

AB: It’s strong growth from a low base, yes. It was never really a strong category, other than beverages, but we’ve transcended into other FM items.

OPI: Do you see that category continuing to grow?

AB: I do but I think it’s gone through a temporary plateau, partly because some of the specialist distributors are kicking back. Our dealers are becoming uncompetitive in some product areas. Some of that is down to own brand, which some specialists sell, so we’re looking to find 5 Star equivalents. The dealers have got a great opportunity here.

OPI: Could some specialists fight back by jumping into office supplies? It’s not a risk for you because you get the best of both worlds.

AB: I think if they were to do that they would be looking for their whole distributor channel to supply the office products, but we’ve not had any requests. If they did then clearly, as you say, that kind of carves the market up and the wholesaler retains the business. But if a new entrant, like a Bunzl, says “let’s have plain office products and we’ll supply all these specialist distributors in FM”, then that effectively could migrate the business that way. That’s always a risk when you get into a new market but I think one thing that differentiates the dealer community is its ability to serve.

OPI: Interesting you mention Bunzl; it seems to have a fairly dominant position in the categories it plays in.

AB: Yes and it’s been on our radar for two or three years now. If they decided office products was a new category for them then it’s proven that they’ve gone out, acquired and dominated. But we’ve got other new threats like Westcoast looking at the sector as the market gets tighter. There will be some new entrants in the next two or three years, I’m convinced of it.

OPI: Let’s talk about fill rates and service levels. I know there have been one or two little blips in the past.

AB: Everyone says this don’t they: we have the best service levels we’ve ever had. Since we launched the new catalogue in January we’ve had no noise on delivery and call lines. Furniture, we’ve still got one or two blips, but the noise has reduced significantly. OK we lost £2 million of sales but the service levels have started to recover and sales are coming back. If you take the rest of the categories, everything that we deliver out of the CDC and the RDCs is up at a 96%, 97%, 98% fill rate and our error rate’s down at less than 0.5%. I think that’s testament to the way we’ve managed the stock; we’ve made sure that more stock is available in RDC than CDC and that’s made the big difference.

OPI: What are you seeing in terms of trends through the DDC?

AB: Birmingham’s increasing exponentially. We’re taking new dealers on but also we’ve got market increase. All of that leads to people wanting end-user deliveries. We’re seeing a double digit increase so we’re investing in an extension at our DDC. We’re putting a whole new track system in with new box launch machines. It’s not going to be state of the art – margins don’t afford state of the art in this sector – but it will be a step change from where we are today. That site will be fully functional by November 2013.

OPI: Will that allow you to compete more competitively with VOW’s Arrow facility?

AB: I would honestly say that over the last 12 months we’ve negated any cost-to-serve benefit. There used to be a 1-2% difference, there isn’t anymore. We’re on par, I’m convinced of that. If you’ve got a single shed, it’s a hungry beast and unless you put the volume through it, it becomes quite a costly animal to run. If you’ve got small distribution units, which have a lower cost base but they’re busy, that cost is spread out and actually becomes more efficient. So with moving Belfast to a collect only and taking out Chessington, from a supply chain point of view, our costs are on par.

OPI: So why should a dealer choose Spicers over VOW? 

AB: Firstly, why are people joining Spicers? Why is Simon Wallis coming back? Why did Tom Rodda come back? They obviously see something in the business; that our plans are strategically, from a market point of view, more sustainable. We’ve a net gain of seven dealers this year and two or three of those have said they like strategically what we’re doing. They see we’re the innovators. We’re not afraid to break a few eggs.

OPI: Is it innovative to take the business development director of your competitor?

AB: Well he came from Spicers in the first place so one could say he’s returning home. Synergy needs ownership and members said: “Go and get Simon.” He brought Synergy to reality in the first place and it’s kind of stalled. So we got him. 

I have got respect for what VOW does. There needs to be two wholesalers in this channel to be able to compete and share, and they’ve got some cracking guys, but business is business and we have to make sure that we remain competitive, ahead of the field and innovative. I think those elements are what attract dealers to us and then VOW tends to follow. Some dealers like that; they like security and the safety of the proven model, that’s fine. There has to be an innovator in a market and I’m pleased that it’s us.

OPI: What can we expect from Synergy? 

AB: Well, you’ll definitely see dedicated marketing and merchandising support, so a lot of the buying groups get benefit. There are catalogues that we want to put to market that we believe the manufacturers can support. Simon will have a team that will grow the membership, but also add and consolidate services.

OPI: How much of your business is through Synergy members?

AB: Just short of a third, 120 members.

OPI: What’s your goal?

AB: I like to think we’d get to 200. I haven’t got a plan for Synergy in terms of hard numbers, that’s Simon’s job. 

OPI: To what extent does Synergy duplicate the efforts of dealer groups that work with Spicers?

AB: We tend not to have a lot of overlap and few complaints about it. The marketing support is where I guess the crossover is, but I think we coexist with the buying groups because the dealers are there to be close to Spicers, not commercially. They want to understand what’s happening within the business, to feel they are part of the team.  

OPI: We’re starting to see a bit of a shift at Spicers, quite possibly because your primary competitor has a multichannel model, which includes an amount of direct business. What is Spicers’ position on channels that might be viewed as competitive to dealers?

AB: We segment the business into three sectors: the SOHO sector, which is predominantly dealt with by retail and e-tail and not dealers; the SME sector, which very much is dealer; and the contract business. Our immediate focus is on the contract business because it’s over £1 billion in sales opportunity where neither dealers nor we play. With the best will in the world dealers aren’t able to secure contracts above £1 million.

OPI: Isn’t there a danger that you’ll have an account that’s £1 million, but a dealer may have a small piece of it?

AB: To make it clear, we do say “we as Spicers have won this £1 million contract,” but we’re working with the dealer to achieve that. For example, One Stop, which is owned by Tesco, is a £1.5 million contract. The dealer won it, and we went to the presentation and gave an underwriting to One Stop that if the dealer failed we’d make sure that there was continuity and supply. We got a high street retailer with exactly the same principle. 

One thing we’ve learnt, very quickly, is that everyone’s heard of Spicers – end-users, contracts, everyone. That allows us to tender. Now doing that with a dealer, we can say: “Look, we’re the infrastructure; we’re the financial support behind all this. This is the dealer that’s going to give the local service.” It’s either one dealer or multiple dealers depending on the sites, then the dealer owns the local relationship and we have a margin share.

OPI: So whose name is on the contract with the customer? 

AB: It varies; most will be dealer-owned contracts. £1 million plus are unlikely to be dealer owned as most contracts stipulate that awards cannot be more than 10% of turnover. In that case a dealer will sign with a guarantee from Spicers. I cannot say that Spicers will never sign a contract because that might be the only way of winning it. The key is that the dealer always plays a part and gets a commission whatever the scenario.

OPI: How do you prevent stealing business from dealers though?

AB: You’re going to get some spill spend through dealers and I don’t think that will change; it’s either a local relationship or it’s a product that’s not available. So the chances are that business will be retained but the bigger picture is that the business is secured, which effectively gives Spicers and the dealer more turnover. We’re sharing margin and it opens up a whole new area of the business.

OPI: That was my next question: how do you manage margins? Obviously you have to be priced more competitively so what kind of relationships do you enter into with the dealers to ensure that they’re able to compete and survive?

AB: The beauty is in the past when people have come to wholesalers for pricing support they said: “We’re not going to do anything at negative margin.” And why would you? That can change now because if you’ve got the whole contract with a dealer, you know that on core product range you can. 

OPI: What will be the impact on Spicers’ top line? 

AB: Well if the dealer delivers a last mile solution we can supply the product from the DDC and strip cost out from the supply chain. So it would be margin enhancing but it will also underpin some of the turnover that we need to grow the business. It would get us into areas that we’re not currently winning. If we only continue to play in the SMB space then us, VOW and any new entrants are just going to continue to beat each other over the head. We have to find these new boundaries. We will try to maintain our principles as a wholesaler supplying free trade and we’re not going to set up a separate division. Fundamentally there’s a billion plus of opportunity; it’s a tough market, why shouldn’t we play in that? 

OPI: So is there a limit to the size of the account you’ll go after or can we expect to see you competing with Lyreco and o2o for government business, for example?

AB: Well if you take Scottish Executive, we were asked to tender. They came to us because they liked the model of the local dealer. At that time we weren’t geared up for it. Going forward I think we’ve got an element of expertise there. We’re never going to be able to go for the real big contract business, because the expertise that some of these contract stationers have got is beyond our current capabilities.

OPI: Let’s talk about vendors. It does seem, to an outsider, that the tone of your correspondence with vendors has been fairly heavy handed, pretty much coinciding with the acquisition by Better Capital. Is that coincidental?

AB: No, I think they brought experience to us that challenged the way we do things and we took that on board. It was our decision to make the communications that we did – the one thing that Better Capital have never done is dictate any strategy to us, which I’m grateful for. But there’s no doubt we learnt from their experience, took appropriate action and I don’t apologise for that.

OPI: If your dealers were to talk to their customers like that Spicers would be out of business within a year. 

AB: The manufacturers can always say no, can’t they? Of course they can because the relationship that you have with a vendor is the same relationship as with a dealer. Every day of the week we get dealers threatening to go to VOW; 100, 200, 300 dealers asking for a price reduction. Bear in mind, every time we go to market with a price increase we have to provide letters from manufacturers. If our costs increase there’s no way of recovering that and we’re constantly getting hit by dealers saying ‘competitive price’. So chip, chip, chip, margin is eroded. 

When I joined the business we were losing money and there’s only a number of ways you can make a business more profitable. You can put your prices up to the market, you can take cost out of your business, or you can buy better. Now, we’ve taken significant costs out of the business. It’s not the environment to start putting prices up to our dealer community because they’re the ones struggling day to day. 

The manufacturers, we believe, through what’s been happening over the last 12, 18 months, have seen an improvement in commodity pricing and exchange rates, so we’re saying give us some back.

OPI: That assumes they are actually feeling the benefits. You’ve not asked the question, you’ve just assumed. You see how it would be perceived.

AB: Well I was a manufacturer for 20 years so I know exactly how it would be perceived, but I make no apology for it and I think we’ve taken appropriate action. Where we’ve derived benefit, those manufacturers were clearly happy to do that. Where we’ve not derived benefit those suppliers have explained their reasons and life moves on. That’s all part of the commercial world that we live in. People are always saying that we need to buy better; well we’re trying to make sure that we’re buying best in class.

OPI: Your purchasing power is essentially 50% less than it was pre-acquisition, so is it reasonable to expect that you’re buying best in class?

AB: That’s one of the reasons we had to take this position. If most manufacturers said “well now you’re only buying half the volume therefore your terms have got to change”, overnight that would have either meant an erosion in margin or an increase in price at the marketplace, neither of which was acceptable. We haven’t seen either. I think that’s a damn good job from the commercial team and equally recognition of the importance of Spicers in the market. 

Going forward we have to continue to make sure we buy best in class; we can’t allow that erosion to continue. There will be a happy medium whereby the supplier’s happy to supply us at that price, we’re happy to buy at that price. Bear in mind we’ve got 250 vendors and we’ve had one that’s come back and said ‘no’. 

OPI: How likely are we to see more exclusive vendor arrangements? 

AB: I don’t think it’s going to blow out and be a significant impact on the market but you’re going to see more of it. Spicers is trying to look at opportunities where we can add value but we have to make sure that we’ve got some level of exclusivity. If we’re going to put investment in, we’ve got to get a return. I’m pleased that manufacturers are seeing Spicers as a good route to market and if that allows us to support the dealer community, give them something they can go to market with, then I think that’s good news for everybody. 

The new home

OPI: Fill us in on the statistics of your shiny new offices.

AB: So. 28,000 sq ft. We have the first floor here, which will house what was the head office, now called the Central Support Service. We want to get away from the ivory tower of having a head office and everything supporting it. We’re all on one floor in an open plan environment, so that’s clearly going to help communication, and this is a much more efficient building. It does allow us to sell the Sawston site, although we are continuing with the lease on the CDC.

OPI: You can give more money back to Capital.

AB: Or reinvest in the business. 

OPI: You’ve just returned £20 million haven’t you?

AB: We have, yes.

OPI: Where did that come from?

AB: Cash, working capital. We’ve been able to generate cash and release that back to the fund and we’ll continue to do that. It means that we’re more self-sufficient. The sale of the site will certainly help as well; at the end of the day we’re office products wholesalers, not farmers. That’s 500 acres of land there.

Project Spring

OPI: Let’s jump on, pardon the pun, to Spring. Canned?

AB: No; it’s been reborn, it’s Lazarus! In its original format, it didn’t work. I tried to bring an element of previous experience: local delivery into a community area that needed same day, next day, there was a niche there for it. I was wrong.

OPI: There wasn’t a niche?

AB: I think there’s a niche. I think there’s definitely an element of dealers not wanting it to work. We maybe anticipated a much higher take up in the local community as well. So on balance it may have been ahead of its time.

OPI: That’s always a great way to justify something you muck up when you say ‘it’s ahead of its time’

AB: I’ve admitted we cocked up; it’s unusual.

OPI: So what’s the reborn entity?

AB: We’ve been asked by dealers to come up with a last mile solution. And we like the name Spring: office products fast.

OPI: Dealers could just join Advantia and let office2office (o2o)’s Truline do it for them?

AB: Well that takes away their identity doesn’t it? I think there’s an alternative way. If you move into the o2o camp, you kind of box yourself up.

OPI: Are you just saying that because you lost some business to VOW?

AB: We walked away from it. It’s well documented that we refused to tender because we weren’t prepared to accept the crumbs off the table. That’s not what we’re about; we’re there to provide wholesale services for the bulk of the product. So VOW can take the scraps if that’s what they want. What the dealers are asking us for is an alternative. They have unnecessary costs in the business, and if we can consolidate their routes then that’s an added value service I think we’d be proud of.

OPI: So in simplistic terms, what will it do for them?

AB: It’s a courier service. The big difference to FedEx, for example, is we’ll employ the drivers. They will be suited and booted and work under the ethos of the customer service. They’ll understand the business and the dealer community.

OPI: So what is it you’re doing now that the dealers will love versus 12 months ago? 

AB: The twist is we’ve asked for dealers’ sub-economical routes. So they can get rid of the van and the driver and take the cost out of the business. If they get more business, they can take it back. It’s not contractual; it’s a facility, a service. We’ll start it in London because we’ve got the site there. I’ve spoken to buying group members and a number of dealers and there’s an appetite for it. What we now have to do is convert it.

OPI: If a customer is costly to get to, surely the dealer just puts the business through the DDC anyway?

AB: A lot don’t. I was talking to a dealer in Haverhill who delivers all the way down in Kent and I asked why he doesn’t use the DDC. He said: “Oh we go down there because it’s personal service, and we’re trying to build up business in that area.” We can turn that route out for him; we can consolidate in that area and deliver.

Alan Ball – Résumé

  • Education: MBA, LLB (Hons), MSc Psychology (Hons) 
  • Managing Director roles at FKI, GE, Wolseley and BSS Group
  • Lived in the US and China
  • Took BSS group division from £300 million sales to £700 million in four years organically
  • Assisted with the sale of Spicers from DS Smith to Better Capital